Note 11. Income Taxes

12 Months Ended

Dec. 31, 2015

Notes

Note 11. Income Taxes

Note 11.          Income Taxes

IHC and its subsidiaries file a consolidated Federal income tax return on a June 30 fiscal year. Prior to January 15, 2013, AMIC and its subsidiaries filed a separate consolidated Federal income tax return on a September 30 fiscal year. The provision for income tax expense (benefit) attributable to income from operations, as shown in the Consolidated Statements of Income, is as follows for the years indicated (in thousands):

		2015		2014		2013
CURRENT:
U.S. Federal	$	14,415	$	20	$	(1,500)
State and Local		1,012		743		1,206
		15,427		763		(294)
DEFERRED:
U.S. Federal		2,119		5,317		8,805
State and Local		120		311		(113)
		2,239		5,628		8,692
	$	17,666	$	6,391	$	8,398

            Taxes computed at the Federal statutory rate of 35% in 2015, 2014 and 2013, attributable to pretax income, are reconciled to the Company's actual income tax expense as follows for the years indicated (in thousands):

		2015		2014		2013
Tax computed at the statutory rate	$	16,866	$	8,159	$	8,279
Dividends received deduction and tax
exempt interest		(796)		(1,384)		(849)
State and local income taxes, net of Federal effect		735		685		710
Health insurance excise tax		526		696		-
Health insurer compensation limit		516		661		-
AMIC valuation allowance adjustment		-		(2,500)		-
Other, net		(181)		74		258
Income tax expense	$	17,666	$	6,391	$	8,398

Temporary differences between the Consolidated Financial Statement carrying amounts and tax bases of assets and liabilities that give rise to the deferred tax assets and liabilities at December 31, 2015 and 2014 are summarized below (in thousands). The net deferred tax asset or liability is included in Other Assets or Other Liabilities, as appropriate, in the Consolidated Balance Sheets. IHC and its subsidiaries, excluding AMIC, have certain tax-planning strategies that were used in determining that a valuation allowance was not necessary on its deferred tax assets at December 31, 2015 or 2014. The net deferred tax asset relative to AMIC included in other assets on IHC’s Consolidated Balance Sheets at December 31, 2015 and 2014 was $16,215,000 and $20,027,000, respectively.

		2015		2014
DEFERRED TAX ASSETS:
Deferred insurance policy acquisition costs	$	-	$	754
Unrealized losses on investment securities		1,935		-
Investment write-downs		205		165
Loss carryforwards		91,558		102,478
Insurance reserves		461		366
Other		5,614		7,126
Total gross deferred tax assets		99,773		110,889
Less AMIC valuation allowance		(74,087)		(74,087)
Net deferred tax assets		25,686		36,802
DEFERRED TAX LIABILITIES:
Deferred insurance policy acquisition costs		(111)		(10,712)
Insurance reserves		(4,180)		(6,856)
Unrealized gains on investment securities		-		(78)
Goodwill and intangible assets		(6,175)		(2,315)
Other		(3,968)		(2,864)
Total gross deferred tax liabilities		(14,434)		(22,825)
Net deferred tax asset	$	11,252	$	13,977

As of December 31, 2015, IHC and its non-life subsidiaries, excluding AMIC, had NOL carryforwards arising from limitations on offsetting non-life insurance company losses against life insurance company income. The non-life insurance company Federal NOL carryforwards amount to approximately $3,533,000 at December 31, 2015, which expire in 2032.

At December 31, 2015, AMIC had Federal NOL carryforwards of approximately $258,061,000, which expire in varying amounts through the year 2028, with a significant portion expiring in 2020.   

AMIC’s valuation allowance at December 31, 2015 and 2014 was primarily related to net operating loss carryforwards that, in the judgment of management, were not considered realizable prior to the effects of the subsequent sale and coinsurance transaction more fully described in Note 19 for subsequent events. During the year ended December 31, 2014, AMIC decreased its valuation allowance by $3,062,000. The valuation allowance decrease in the year ended December 31, 2014 included $2,500,000 for the projected utilization of Federal net operating losses allocated to operations.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the period in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Management believes that it is more likely than not that IHC and its subsidiaries, and AMIC, will realize the benefits of these net deferred tax assets recorded at December 31, 2015. As of December 31, 2015, IHC and its subsidiaries, and AMIC, believe there were no material uncertain tax positions that would require disclosure under U.S. GAAP.

It is anticipated that there will be a significant utilization of AMIC’s Federal NOL carryforwards in 2016, and a corresponding adjustment to AMIC’s valuation allowance, in connection with a sale and coinsurance transaction more fully described in Note 19 for subsequent events.

Interest expense and penalties for the years ended December 31, 2015, 2014 and 2013 are insignificant. Tax years ending June 30, 2012 and forward are subject to examination by the Internal Revenue Service.

Net cash payments (receipts) for income taxes were $10,974,000, $(2,448,000) and $(387,000) in 2015, 2014 and 2013, respectively.